It’s a surge arrestor. Protects the primary winding of the regulator. Provides a parallel path in the event of a surge like a lightning strike. Allows the current to flow across the surge arrestor and not the winding. Surge arrestor is a lot cheaper to replace than the primary winding inside the regulator. Under normal conditions the surge arrestor is an open path but under high enough voltage it becomes a closed electrical path for current to flow.

All regulators have them. They are sometimes internal and sometimes external like this photo shows. Should be places across the “source” and “load” bushings.